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Fiscal policy and interest rates in a small open economy

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  • Jesper Lindé

    (Research Department, Sveriges Riksbank, Sweden)

Abstract

This paper contains an empirical investigation of the effects of fiscal policy on interest rates based on a conventional stochastic macro model designed for a small open economy. The empirical investigation utilizes data for Sweden, a country which has experienced very large fluctuations in the government budget deficits and in the short- and long-term nominal interest rates, thus providing a better empirical test than previous studies. According to the empirical results, larger budget deficits induce higher interest rates, as implied by conventional macroeconomic theory.

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Bibliographic Info

Article provided by Finnish Economic Association in its journal Finnish Economic Papers.

Volume (Year): 14 (2001)
Issue (Month): 2 (Autumn)
Pages: 65-83

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Handle: RePEc:fep:journl:v:14:y:2001:i:2:p:65-83

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  10. Allen, Stuart D., 1990. "The effect of federal deficits and debt on the tax-adjusted, short-term, real interest rate," Economics Letters, Elsevier, vol. 34(2), pages 169-173, October.
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Cited by:
  1. Suzan Hol, 2006. "Determinants of long-term interest rates in the Scandinavian countries," Discussion Papers 469, Research Department of Statistics Norway.
  2. Tigran Poghosyan, 2012. "Long-Run and Short-Run Determinants of Sovereign Bond Yields in Advanced Economies," IMF Working Papers 12/271, International Monetary Fund.

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